The $54 million construction project underway at Mary Free Bed Rehabilitation Hospital in downtown Grand Rapids just became a $62.5 million project, but that won’t be obvious from looking at it.

Ground broke on a new hospital building in April adjacent to the existing facilities, and major renovation of the existing structures also began then. Now Mary Free Bed has announced it is in the process of buying 39 unused bed licenses from Pennock Health in Hastings for $5.1 million, so some of the space in the new building that was planned to be left unfinished for future expansion is now going to be ready when the building is occupied in late 2014.

The addition of the Pennock beds will take Mary Free Bed from its existing 80 acute rehabilitation care beds to 119, and there will be an addition of 48 skilled nursing beds, as well, for a total of 167 beds.

The new six-story, 190,000-square-foot building includes 80,000 square feet of parking on the first and second floors, which will be shared with Mercy Health Saint Mary’s next door. Plans originally called for floors three and four to be ready for patients, with the top two left as “shells” for future expansion. Now only the top floor will be left a shell.

Mary Free Bed President and CEO Kent Riddle said the rehab system will pay Pennock $5.1 million for the 39 licenses. Hospital beds are strictly limited by the state of Michigan to prevent the inefficient addition of more than necessary, which adds to overall health care costs. The $5.1 million payment to Pennock is not counted as part of the cost of Mary Free Bed’s total project.

Pennock is currently licensed for 88 beds by the State of Michigan Certificate of Need Commission. According to a statement from Pennock, the goal of American health care reform is to reduce the need for hospital stays in the future through increased prevention and disease management.

Pennock also notes that its actual utilization rate for inpatient beds, based on an average daily census, has not been above 50 patients in several years and has averaged slightly over 30 for the past four years. Beginning in 2014, the Affordable Health Care Act will begin shifting more patient care from inpatient to outpatient status. Pennock also said projections for 2023 provided by Truven Health Analytics show an average daily inpatient census of 32.4, well below the 88 licenses Pennock currently has.

Pennock chose to reduce its bed count by selling 39 of its unused licenses and filed an application with the state CON Commission in late September, requesting permission to sell them to Mary Free Bed.

Riddle said approval is expected within 60 days.

“Health care institutions all across the United States are working to find ways to manage population health in the future and do it in the most cost-effective way possible. We are doing the same, while maintaining Pennock’s emphasis on personalized, high-quality care,” said Pennock CEO Sheryl Lewis Blake.

In 2012, Pennock began a renovation project, converting many of its double occupancy rooms to singles. Blake said “shortened recovery time, reduced risk of infection and increased patient satisfaction are a few of the major benefits of single-patient rooms, which are a standard in health care today.”

Mary Free Bed also has revised its original plan for the skilled nursing beds in the new building; 40 was the original number but now 48 are deemed necessary.

Mary Free Bed has a joint venture with Trinity Senior Living Communities for its skilled nursing rehab program at the new facility. All those bed licenses will be transferred from Trinity’s Sanctuary at Saint Mary’s on Four Mile Road NW in Grand Rapids.

While the goal of health care reform is to make the American people healthier overall throughout their lives — thus reducing the beds needed in traditional acute care hospitals, that won’t change the number of major accidents and other situations that leave people with crippling injuries that require rehabilitation.

In other words, rehab hospitals probably are not going to shrink.

“There is a need to reduce health care costs, and so what’s happening is there is a shift out of the acute care hospital bed to the post-acute world — and the post-acute world starts with acute rehabilitation,” said Riddle.

Patients hospitalized at Mary Free Bed today would largely have been in mainstream acute care hospitals 10 years ago, said Riddle, while in turn, many patients who would have been in Mary Free Bed 10 years ago are now living in skilled nursing facilities. The shift in patient care ultimately will have as many patients as possible cared for in their homes because “the home is the lowest cost setting for care,” according to Riddle. In fact, Mary Free Bed also now has home care services, he noted.

Rehab hospitals like Mary Free Bed “are in that in-between,” he said, midway between acute care hospitals and skilled nursing facilities. “So that’s why we are growing and other hospitals are getting smaller in patient numbers.”

Mary Free Bed has experienced “an awful lot of demand for our care and it continues to rise,” added Riddle.

The renovations will impact 200,000 square feet at the existing hospital, outpatient therapy and the Mary Ives Hunting building. Renovations are expected to be complete in winter 2015.

The expansion will enable Mary Free Bed to serve an additional 3,000 patients per year. All the patient rooms will be private with private baths, and there will be a charting cubicle for every six patient rooms to keep nurses and technicians in closer proximity. There will be specialized therapy gyms on two patient floors, and the expansion will support new programs such as the Betty Bloomer Ford Cancer Rehabilitation.

At least 350 new jobs will be created in skilled nursing, therapy and related health care specialties, according to the hospital.

The general contractor on the project is The Christman Co. URS is the architect of record, and VOA Architect Associates of Chicago is the design architect.

Pete Daly is a Grand Rapids Business Journal staff reporter who covers small business, banking and finance, food service and agriculture and government. Email Pete at pdaly at grbj dot com. Follow him on Twitter @PeteDalyGR

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